The leading case authority for the approach to the assessment of the cost of alternative accommodation for a disabled claimant is Roberts v Johnstone  QB 878. This case ruling set out that the measure of damages in respect of additional housing costs necessitated by a plaintiff’s injuries is the additional cost over his or her lifetime of providing that accommodation. As regards the discount to be applied for the immediate receipt of funds to represent future losses, the court initially adopted the figure of two per cent because “a tax-free yield of two per cent in risk free investment would not be a wholly unacceptable one”.
The Roberts v Johnstone calculation is based upon the Court’s view that it is only the real (i.e. above inflation) rate of return on a risk free investment that should be awarded as compensation. What the calculation compensates therefore is the cost of the accommodation less the discounted value of the accommodation at the Claimant’s death because the Claimant still has the capital in question at the time of their death. The notion for this was that the sum expended on a house otherwise would have earned an income. The figure for the real rate of return on a risk free investment is now based on the rate set by the Lord Chancellor for calculating future losses using multipliers from The Government Actuary’s Department Actuarial Tables for use in Personal Injury and Fatal Accident cases Seventh Edition (“The Ogden Tables”).
Although Roberts v Johnstone remains the leading case authority, the Civil Justice Council Injury Committee, Accommodation Claims, October 2010 paper identified four key issues:
- The Roberts v Johnstone calculation assumes that the Claimant is able to fund the additional capital required to provide the appropriate accommodation
- General and special damages usually will not make up the shortfall in the amount needed to fund accommodation needs
- There is a need to estimate life expectancy
- The use of the discount rate is predicated upon the assumption that the value of property will increase in line with the Retail Prices Index inflation
The discount rate used by the Courts to determine the Roberts v Johnstone award was changed on 7 February 2017 when it was revised from 2.5% to -0.75%. The use of a negative rate of return of -0.75% has impacted on the assessment by the Court’s as the real (i.e. above inflation) rate of return on a risk free investment is less than zero. Using this as the basis for assessment results in a negative return and consequently there is no loss.
The results of the application of the -0.75% rate of return have been reviewed in two cases in the lower courts. The first case was JR v Sheffield Teaching Hospitals NHS Trust (2017) EWHC 1245 (QB). The Judge reviewed the law and noted that the Court of Appeal had “expressly approved the proposition that damages for accommodation costs should not represent the full capital value of the asset since that would remain intact at the claimant’s death and thereby represent a windfall to the claimant’s estate” and that as a result the Court of Appeal had considered the loss by reference to the cost of the lost income. He recognised that there had been numerous criticisms and attacks on the Roberts v Johnstone approach. However, he was bound by Roberts v Johnstone and, given the negative discount rate, he had to consider the return on a risk free investment as representing JR’s loss. On the evidence (and discount rates) there was thus no loss.
Although the case of JR v Sheffield Teaching Hospitals NHS Trust was appealed and was to be heard by the Court of Appeal, the Court approved settlement for future accommodation before the case was to be assessed by the Court of Appeal.
The second case was Swift v Carpenter  EWHC 2060 (QB). The defendant argued that Roberts v Johnstone applies and the recovery for the additional cost of purchasing suitable alternative accommodation at a cost of £900,000 should be £Nil. The claimant argued that the court was not bound by Roberts v Johnstone and proposed four alternative approaches namely:
- Awarding the cost of an interest only mortgage
- The defendant funding the cost of an interest only mortgage via a periodic payment order
- Making an award on the basis of Roberts v Johnstone but substituting 2% for the multiplicand
- Awarding damages to reflect the cost of renting special accommodation
The judge whilst acknowledging the Roberts v Johnstone formula produced problems and anomalies considered that she was bound by the case and there was no sensible basis on which to argue otherwise and the four alternative approaches put forward by the claimant would all produce a windfall which the approach adopted in Roberts v Johnstone was advanced to avoid.
Swift v Carpenter is scheduled to be heard by the Court of Appeal in late July 2019. However at present the leading case law remains Roberts v Johnstone with the approach for valuing the cost of alternative accommodation for a disable person as being the loss of the real (i.e. above inflation) rate of return on a risk free investment.
The Lord Chancellor has given authority for a working party to review the Ogden rate under the Damages Act 1996 as amended by the Civil Liability Act 2018. As per the legislation the Lord Chancellor is required to conduct the review and determine whether the Ogden rate should be retained or adjusted within 140 days. That means no later than 5 August 2019.
The outcome of the review of the Ogden rate is that from 5 August 2019 a revised rate of minus 0.25% is to be implemented. The Lord Chancellor has also indicated that in future reviews consideration will be given to dual rates reflecting the difference in investment return strategy for shorter term and long term (15 plus years) award settlements. The Lord Chancellor commented:
“The Government Actuary provided an analysis of dual rates – this would involve a lower short term rate and then a higher long term rate after a ‘switchover’ period. Although I consider their analysis interesting with some promising indications, I do not consider it appropriate, noting the lack of quantity and depth of evidence required, to adopt a dual rate for this review. The potential of the dual rate to be appropriate for future reviews is one that I will consider in more detail”.
This outcome to the Ogden rate neither satisfies supporters of the alternative approaches set out in Swift v Carpenter nor will it resolve the issues raised in the Civil Justice Council Injury Committee, Accommodation Claims, October 2010 paper.
The outcome of the Swift v Carpenter appeal will therefore be of interest to all parties involved in Roberts v Johnstone awards.
If you require any assistance in determining Roberts v Johnstone awards either in support of Claimant’s or Defendant’s we will be pleased to assist as expert forensic accountants.
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